Questions 1-3
Problem 10 For the past several years, the Ashley, Hayden, Luke, and Jacob partnership has operated a restaurant. Based on the provisions of the original articles of partnership, all profits and losses have been allocated on 4:2:2:2 ratios. Recently, both Ashley and Luke have undergone personal financial problems and, as a result are now insolvent. Ashley's creditors have filed a $12,000 claim against the partnership's assets and $18,000 is being sought to repay Luke's personal debts. To satisfy these legal obligations, the partnership must liquidate. The partners estimate that they will incur $12,000 in expenses to dispose of all noncash assets. At the time that active operations cease and the liquidation begins, the following partnership balance sheet is produced. All measurement accounts have been closed out to arrive at the current capital balances. Cash $40,000 Noncash assets 300,000 Liabilities 130,000 Hayden loan 13,000 Ashley, capital 75,000 Hayden, capital 20,000 Luke, capital 60,000 Jacob, capital 15,000 During the liquidation process, the following transactions took place: 1) Sale of noncash assets with a book-value of S193,000 for $153,000 cash. 2) Payment of $17,000 liquidation expenses. No further expenses are expected. 3) Distribution of safe capital balances to the partners. 4) Payment of all business liabilities. 5) Sale of the remaining noncash assets for $27,000. 6) Determination of deficit capital balances, if there are any, for any insolvent partners as uncollectible. 7) Distribution of final cash. Required: 1. Using the information available prior to the start of the liquidation process, develop a pre- distribution plan for this partnership. 2. Prepare journal entries to record the actual liquidation transactions. 3. Prepare a Schedule of Partnership Liquidation Problem 10 For the past several years, the Ashley, Hayden, Luke, and Jacob partnership has operated a restaurant. Based on the provisions of the original articles of partnership, all profits and losses have been allocated on 4:2:2:2 ratios. Recently, both Ashley and Luke have undergone personal financial problems and, as a result are now insolvent. Ashley's creditors have filed a $12,000 claim against the partnership's assets and $18,000 is being sought to repay Luke's personal debts. To satisfy these legal obligations, the partnership must liquidate. The partners estimate that they will incur $12,000 in expenses to dispose of all noncash assets. At the time that active operations cease and the liquidation begins, the following partnership balance sheet is produced. All measurement accounts have been closed out to arrive at the current capital balances. Cash $40,000 Noncash assets 300,000 Liabilities 130,000 Hayden loan 13,000 Ashley, capital 75,000 Hayden, capital 20,000 Luke, capital 60,000 Jacob, capital 15,000 During the liquidation process, the following transactions took place: 1) Sale of noncash assets with a book-value of S193,000 for $153,000 cash. 2) Payment of $17,000 liquidation expenses. No further expenses are expected. 3) Distribution of safe capital balances to the partners. 4) Payment of all business liabilities. 5) Sale of the remaining noncash assets for $27,000. 6) Determination of deficit capital balances, if there are any, for any insolvent partners as uncollectible. 7) Distribution of final cash. Required: 1. Using the information available prior to the start of the liquidation process, develop a pre- distribution plan for this partnership. 2. Prepare journal entries to record the actual liquidation transactions. 3. Prepare a Schedule of Partnership Liquidation
